APR and Payday Loans
Posted on Thursday, June 3rd, 2010 at 1:02 pm in Financial Planning, Miscellaneous Cash Loan Info
When detractors are criticizing payday loans, they will often times cite the high APR, as an example of what is wrong with payday loans. The flaw in their argument is that they are simply looking at the larger than average APR number and not the reason behind it, and more often than not, these people have never used an instant cash advance before and are unaware of how it actually works. So let’s start this article by exploring what exactly is an APR and how it relates to your payday loans and our payday lenders.
First, APR stands for “annual percentage rate”. This refers to the interest rate on a loan over an entire year. The annual percentage rate can fluctuate greatly, depending on the term of the lease. For instance, most loans are usually over the course of a few years, which means a much smaller APR. The nature of payday loans means a much higher APR, simply because the term of the loan is usually less than two weeks. The shorter the term of the loan means the higher the APR. Let’s say you have a loan of $100 and the term of the loan is 16 days, with a loan fee of $25. Your APR will be 506.94%. Because of the fixed loan fee, the APR will fluctuate depending on the length of the loan term. The total paid for your loan may be $125 but the APR can drastically change depending on when the loan is paid back.
The annual percentage rate has caused some confusion among borrowers of payday loans and has even given detractors of payday loans some ammunition, but rather than blindly following the claims of others, we should all take the initiative to explore the meanings behind payday loans. By doing our own research beforehand, we are able to better understand immediate cash advances and can feel confident when we need to utilize the service of payday lenders.
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